Delhi District Court
Vardhman Cables India Pvt Ltd vs Mahanagar Telephone Nigam Ltd on 31 March, 2021
In the Court of Shri Sanjiv Jain,
District Judge (Commercial Court)03, Patiala House Courts
New Delhi
ARB No. 3044/18
Vardhman Cables India Pvt Ltd,
C483, Yojna Vihar,
New Delhi.
... Petitioner/objector
versus
1. Mahanagar Telephone Nigam Ltd,
Jeevan Bharti, 12th Floor, Tower 1,
124, Connaught Circus, New Delhi.
2. Secretary General,
Plot No. 6, Vasant Kunj Industrial Area,
Phase 2, New Delhi.
... Respondents/claimants
Date of institution : 16.07.2018 Date of reserving judgment : 25.02.2021 Date of decision : 31.03.2021 JUDGME NT
1. This petition under Section 34 of the Arbitration and Conciliation Act, 1996 (as amended upto date) hereinafter called the 'Act' challenges the award dated 25.04.2018 passed by the Arbitrator Mr. Justice I. P. Vasisth (Retd.).
ARB No.3044/18 Vardhman Cables P Ltd Vs. Mahanagar Telephone & Ors Page No.1 of 30 Brief facts:
2. Briefly the facts are that the respondent no.1 (respondent) had floated tender no. Eng. SP/A498/200102/6 dated 25.05.2001 for supply of self supporting PVC dropwire with fiberglass roving as strength member 5mm dia. The petitioner participated in the tender and was declared as the successful bidder. A letter of indent dated 18.07.2001 was issued to the petitioner for supply of 4690 Kms of dropwire. As per the terms, the respondent was required to furnish performance bank guarantee (PBG) for a sum of Rs. 2,69,200/ i.e. 5% of the purchased value, to compensate for any loss caused to the respondent by the petitioner. The petitioner furnished the PBG issued by State Bank of India. The delivery was scheduled to be made in a phased manner at short durations and to be completed on or before 29.12.2001.
3. The petitioner supplied 3500 Kms of dropwire out of the indented quantity of 4690 Kms well within the original delivery period ending 29.12.2001. Another 1000 Kms of dropwire was supplied within the extended period of 15.08.2002 leaving a balance of 190 Kms, which was not supplied. The petitioner through various letters sought extension of delivery period for the supply of the balance quantity but the same was refused by the respondent. The respondent forfeited the PBG and got it encashed. It also withheld the balance payment of the petitioner of an amount of Rs. 2,81,500/ and raised a counter claim of Rs. 3,39,913/ alleging the supply of substandard goods and placed the petitioner on black list. The ARB No.3044/18 Vardhman Cables P Ltd Vs. Mahanagar Telephone & Ors Page No.2 of 30 petitioner invoked the arbitration clause and claimed refund of the amount against PBG, balance payment along with the interest and also the compensation for the loss of business and damages. It alleged that as per the clause 17 of Part III of the contract, the respondent was bound to give a notice of default at least 30 days prior to the termination of contract, which the respondent did not and vide letter dated 16.12.2002, it terminated the contract and encashed the bank guarantee, which was illegal. It was also alleged that no risk purchase was made by the respondent and it did not suffer any loss, so it is liable to return the bank guarantee. It was also alleged that the respondent black listed it without giving any opportunity of hearing and without disclosing any reason, thus, caused damage to its reputation. It filed the claims for a sum of Rs.
19,53,677.88.
4. The respondent contested the claims and also raised counter claims for a sum of Rs. 3,39,913/ alleging that the wire supplied by the petitioner was substandard.
5. The Arbitrator vide award dated 29.12.2003 allowed the claim of the petitioner for Rs. 2,81,502/ towards the outstanding dues but rejected the claim of Rs. 2,18,120/ as damages towards loss and Rs. 5.0 lakhs towards loss of future business. The Arbitrator also rejected the claim for the refund of the bank guarantee nor granted the pendentelite interest as claimed by the petitioner but allowed the future interest @ 9% per annum.
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6. The petitioner filed the objections against the award before the District Court, which were dismissed vide order dated 08.12.2009. The Court referred clause 14.1 and 14.2 of the Contract and observed that there is no dispute that there was delay of supply of the agreed quantity on behalf of the petitioner. There is also no dispute that the respondent vide letter dated 16.12.2002 had short closed the contract for non supply of balance 190 Kms of cable and recalled the PBG. The Court considered the contention of the petitioner that three months notice was required to be given before termination of the contract and held that invoking of bank guarantee is not linked with the termination of contract. There was a delay in the supply of goods which entailed three sanctions as contained in clause 14.2. It was the discretion of the respondent to impose any or all the three sanctions. Even if it is held that there was no valid termination of contract, the respondent was well within its right to invoke the bank guarantee as provided under clause 14.2. It had chosen to forfeit the PBG and the forfeiture was neither linked to liquidated damages nor the termination of contract. The Court also considered clause 14.2 and the contention of the petitioner that there was no loss having been caused to the respondent on account of its failure and it is entitled to the refund of PBG. It was held that the forfeiture of PBG perse could be imposed in case of delay in supplies and it was not governed / subjected to the rider of actual loss having been incurred by the respondent. It was observed that the invocation of bank guarantee was duly considered by the Arbitrator ARB No.3044/18 Vardhman Cables P Ltd Vs. Mahanagar Telephone & Ors Page No.4 of 30 and there is no perversity in his finding. As to the pendentelite interest, it was held that it was within the jurisdiction of the Arbitrator to grant pendentelite interest and its non granting cannot be said to be against the law.
7. The petitioner preferred an appeal vide FAO No. 222/2010 against the order of the Court dated 08.12.2009. The High Court vide order dated 29.09.2011 observed inter alia as under:
A reference to the arbitration proceedings shows that though it was not so pleaded by any of the parties, yet, actually the real issue was whether the amount of bank guarantee could be retained by the respondent because loss had been caused in terms of Section 73 of the Act or that because of a clause of liquidated damages taken with the fact that loss has been caused for such amount of loss to be adjusted by encashing the bank guarantee in terms of Section 74 of the Act. The respondent seems to have gone on a tangent in the arbitration proceedings by contending that as per the judgment of the Supreme Court, encashment of the bank guarantee can be prevented by the Courts, however, this was not an issue because no doubt encashment of bank guarantee cannot be interdicted by the Court, however, entitlement to retain the amount with respect to the bank guarantee encashed can only be if loss is pleaded and proved in terms of Section 73 or if loss is otherwise caused and the ARB No.3044/18 Vardhman Cables P Ltd Vs. Mahanagar Telephone & Ors Page No.5 of 30 amount is retained because of the clause of liquidated damages under Section 74 of the Act. I have already stated above that the pleadings of the appellant were also equally vague in the arbitration proceedings because it was not the case of the appellant that respondent no. 1 did not suffer any loss and therefore was not entitled to forfeit the amount of the bank guarantee in terms of Section 73 of the Act or because that there was no clause of liquidated damages entitling forfeiture under Section 74 of the Act and that no loss had been caused.
8. It was held that both the parties as also the Arbitrator have failed to address themselves to the real issue applicable i.e. as to whether the amount encashed by the respondent under the bank guarantee could be retained by the respondent either because loss had actually been caused and which could have been pleaded and proved under Section 73 of the Act or because there was a clause of liquidated damages and the bank guarantee amount was adjusted against the clause of liquidated damages under Section 74. The High Court set aside the award on these aspects and referred the matter back to the Arbitrator for fresh decision on the issues of the entitlement of the respondent to retain the bank guarantee amount and entitlement of the appellant / petitioner to refund of the same and also as to whether the appellant / petitioner should be granted or denied the pendentelite interest with respect to the amount of the bank guarantee if awarded in favour of the appellant in accordance ARB No.3044/18 Vardhman Cables P Ltd Vs. Mahanagar Telephone & Ors Page No.6 of 30 with law. Parties were also given liberty to file additional pleadings with respect to these aspects before the Arbitrator and to lead such evidence as they so think fit.
9. Mr. Justice I. P. Vasisth (Retd.) was appointed as the Sole Arbitrator. The Arbitrator afforded the opportunity to the parties to file their amended pleadings and produce evidence in support of their respective contentions. The parties filed the amended pleadings. The respondent also submitted some documentary evidence. The Arbitrator considered the contention of the parties and the judgments referred by the petitioner i.e. Hindustan Construction Limited Vs. State of Bihar & Ors, AIR 1999 SC 3710, Vinitec Electronics Pvt Ltd Vs. HCL Infostems Ltd (2008) 1 SCC 544 and Gujarat Maritime Board Vs. L & T Infrastructure Development Projects Ltd (2016) 10 SCC 46. It was argued before the Arbitrator that shorn of giving a regular notice of any loss or damage to its business for want of timely supply of dropwire, the respondent has miserably failed to show that it suffered any loss in the process; taken at its best it could produce only two purchase orders dated 13.06.2003 & 20.06.2003 showing the procurement rate of Rs. 1,199.70, which was a little higher than the subject contractual price but no link evidence was produced to show that the consent delivery of the goods has also been taken by the respondent. It was argued that in view of this total failure, the respondent was not entitled to forfeit or encash the bank guarantee and was liable to account for and reimburse the unlawful gains by way of interest which it earned ARB No.3044/18 Vardhman Cables P Ltd Vs. Mahanagar Telephone & Ors Page No.7 of 30 on this withheld money. The Arbitrator referred Para 1 & 2 of the bank guarantee and held that the above clauses would show that it did not oblige the respondent either to notify the bank or the petitioner in advance about its intention to encash the bank guarantee, rather the respondent was the sole judge to decide as to whether the bank guarantee was required to be encashed without assigning any reason to the bank who was duty bound to carry out the mandate without raising any eyebrow. The Arbitrator dismissed the contention of the petitioner that it was a conditional guarantee. He held that it was for the respondent to decide whether it had suffered any loss or damage for want of timely supply of the goods. Although, in the original pleadings, it was pleaded by the petitioner that timely supply of the goods could not be made because of the obstruction created by the respondent but later this plea was given a go bye. Further it is an admitted position that at least seven extensions of time were taken by the petitioner to supply the dropwire without any proper explanation why the supply was delayed. The warnings issued by the respondent against the delay were totally ignored. When the sixth extension was taken on 15.07.2002 against the original expiry date of 29.12.2001, the respondent in its letter sounded a note of caution that it was the last extension and failure to supply would result in revocation of the bank guarantee along with other penality as per the terms and conditions. In pursuance to this note, the petitioner supplied two lots of 500 Kms to make up the total supply of 4500 Kms against the contractual 4690 Kms and was still in default of 190 Kms when the ARB No.3044/18 Vardhman Cables P Ltd Vs. Mahanagar Telephone & Ors Page No.8 of 30 contract was foreclosed on 12.11.2002. On the other hand, the respondent by amended pleadings and evidence has shown the loss, it suffered because of the petitioner's failures to supply the dropwire in time. He referred clause 14.1 of the purchase order, which obligated the party to stick to particular time frame and clause 14.2, which provided that delay shall render the supplier liable to any or all the sanctions including forfeiture of performance security, liquidated damages and / or termination of contract for default. It was held that the petitioner's letters placed at Page 6566 of paper book confirmed its failure to supply the goods in time because of its own negligence and not due to the fault on the part of the respondent. The respondent was also entitled to recover liquidated damages in terms of clause 15.1 of the contract. The respondent's additional documents Annexure R1 & R2 show its planned project to utilize the dropwire for providing new connections to the consumers and also to consolidate and maintain the existing system. Detailed calculations have been given in these documents as to how many connections were likely to be provided with this wire and how much revenue could have been raised by it. Obviously due to the failures of the petitioner to supply the dropwire in time, the respondent suffered the loss of prospective profit and revenue. He referred the case of M/s Construction & Design Services Vs. DDA, Civil Appeal No. 14401441 of 2015, where the Supreme Court has held that in case of delay in completion of work relating to public utility, actual loss need not be proved and the same can be presumed on the facts of the case.
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10. The Arbitrator held that in this matter, the supply which had to be completed within a span of little more than five months, could not be completed even in 16 months. It goes without saying that this material had to be used for providing a public utility to the consumers on commercial basis, so it does not appeal to judicial conscience that there was no loss or damages to the respondent. It was held that the respondent was justified in forfeiting and encashing the PBG and the petitioner is not entitled for its refund; so obviously the question of its entitlement to any interest does not arise at all. He gave a 'Nil' award and left the parties to bear their own cost.
11. The petitioner challenged the impugned award on the following grounds:
1. That the award is wholly illegal, perverse, arbitrary and contrary to the contract. The Arbitrator misunderstood and misinterpreted clauses 14, 15 and 17 of the Contract and also Section 73 of the Contract Act. He also misunderstood the bank guarantee conditions and the termination letter and failed to appreciate the case laws referred by it. It is stated that the bank guarantee was a conditional bank guarantee, which could be invoked, if the pre conditions for encashing are satisfied. The respondent never informed the bank all or any of the conditions of encashment.
2. That the Arbitrator erred in law that the respondent was entitled to recover liquidated damages in terms of clause 14.1. In this case, no liquidated damage was claimed by the respondent. Clause 15.1 does not apply when there is a short delivery. In the additional pleading, no liquidated damage was pleaded but only expected revenue loss was claimed, ARB No.3044/18 Vardhman Cables P Ltd Vs. Mahanagar Telephone & Ors Page No.10 of 30 which is barred and prohibited under Section 73 of the Contract Act.
3. The Arbitrator failed to appreciate the law laid down by the Supreme Court that if there is no actual loss, then no compensation can be granted (Kailash Nath Associates Vs. DDA & Anr (2015) 4 SCC 136 and Indian Oil Corporation Vs. M/s Llyds Steel Industries Ltd 144 (2007) DLT 659).
4. That the Arbitrator misunderstood the case of Construction & Designs Services supra. In this case, no public utility has been pleaded. There was no material to say that MTNL was a public utility service.
Reply to the objection:
12. On getting the notice of the petition, the respondent filed its reply stating that the petitioner has failed to make out any ground whatsoever as envisaged under Section 34 of the Act for setting aside the award. The Court dealing with such a petition is not an Appellate Forum and it cannot reappreciate the evidence on record and substitute the findings of the Arbitrator with its own findings unless the findings of the Arbitrator are such which shock the conscience of the Court. The interpretation of contract is well within the domain of the Arbitrator. It is stated that the award is a well reasoned award, which is passed after taking into account the submissions made by the parties and appreciating the entire evidences adduced by the parties and additional pleadings. It is stated that all the objections as raised in the petition have already been addressed by the Arbitrator.
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13. It is stated that the time was the essence of the contract. The petitioner was required to supply the total length of dropwire before 29.12.2001 as per the purchase order dated 21.07.2001 but the petitioner failed to complete the supply within the stipulated time and even during the extensions granted on the requests of the petitioner, which made the respondent short close the purchase order. It is stated that the High Court had remanded the limited issue of entitlement of the respondent to retain the bank guarantee amount or of the entitlement of the petitioner for refund of the amount keeping in view of the lack of pleadings on this aspect, so there was no question of determination of illegality of the termination of the contract. It is stated that it is not a case of risk purchase, where the respondent would have been required to prove the procurement of similar goods and actual payments made against such procurement, so that the difference in the price, which would have been paid to the petitioner, had it supplied the dropwire and the price which was actually paid would have been recoverable. It is a case of retention of bank guarantee amount on account of the failure of the petitioner to fulfill the contractual obligations. The purchase orders placed by the respondent were not to show difference in price but to show that the respondent was able to place the purchase order for the remaining length only in the month of June 2003 and therefore, average revenue per user was taken for six months to calculate the loss. It is stated that the terms & conditions of the bank guarantee clearly state that the bank guarantee is unconditional and irrevocable, which was meant to secure the observance and ARB No.3044/18 Vardhman Cables P Ltd Vs. Mahanagar Telephone & Ors Page No.12 of 30 performance of the terms of the contract. The respondent denied the other averments made in the petition and stated that the petition deserves to be dismissed.
Arguments and contentions
14. I have heard Ld. Counsel Sh. S. K. Gupta for the petitioner and Sh. S. K. Singh, Ld. Counsel for the respondent. Parties also field their written synopsis.
15. Ld. Counsel for the petitioner reiterated what has been stated in the petition. He contended that clause 14.2 provides for the forfeiture of PBG in case of any loss due to non supply; clause 14.2 provides for payment of security guarantee to the extent of loss suffered by MTNL and clause 17.2 provides that MTNL will purchase unsupplied quantity of 190 km and if excess cost is paid, the same would be recovered from the petitioner. Ld. Counsel stated that the respondent had purchased the same dropwire @ Rs. 1190.70 per Km by incurring extra cost of Rs. 51.70 per Km and therefore, the loss suffered by the respondent for 190 Km was only Rs. 9823/ which at best could be recovered as a loss by MTNL in terms of the contract and it was bound to return the bank guarantee after deducting the said amount, which comes to Rs. 2,59,377/. Ld. Counsel stated that PBG was a conditional bank guarantee and invocation letter of the respondent dated 16.12.2002 does not specify the premandatory conditions of the guarantee. The respondent by additional pleading has claimed an imaginary loss of Rs.
ARB No.3044/18 Vardhman Cables P Ltd Vs. Mahanagar Telephone & Ors Page No.13 of 30 2,31,52,545/ as the loss of revenue for six months, which it could have earned, if the lines would have been laid. Ld. Counsel stated that imaginary amount cannot be considered / permitted in law & contract. The loss, which the respondent has proved is only Rs. 9823/. Ld. Counsel contended that the Arbitrator has gone beyond the reference made by the High Court and discussed the wholly irrelevant case of Construction Designs Service supra. Ld. Counsel contended that the case supra was a case of liquidated damages, where it was held that in the work of public utility, actual loss need not be proved and the loss can be presumed. Ld. Counsel stated that the contract and the Contract Act only recognize the actual loss. Neither the liquidated damages were claimed by the respondent nor it was referred to the Arbitrator. Ld. Counsel referred Section 55 of the Contract Act and stated that in case, the owner still accepts the performance beyond the time agreed, no compensation can be claimed by him for any loss unless at the time of such acceptance, notice of compensation is given to the contractor. In support of his contentions, he placed reliance on the cases Indian Oil Corporation supra, Kailash Nath Associates supra, Paramjit Singh Chopra & Ors Vs. Maples Corporate Services Pvt Ltd & Ors, 197 (2013 DLT 1, Maula Bux Vs. Union of India, 1969 (2) SCC 554, NHAI Vs. Hindustan Construction Co. Ltd, 2017 (5) Arb. LR 258 (Delhi) (DB) and Hindustan Construction Co. Ltd Vs. State of Bihar & Ors, AIR 1999 SC 3710.
16. Ld. Counsel for the respondent per contra reiterated what ARB No.3044/18 Vardhman Cables P Ltd Vs. Mahanagar Telephone & Ors Page No.14 of 30 has been stated in the reply to the petition. He submitted that the documents placed by the petitioner would demonstrate that the respondent is entitled to retain the bank guarantee amount and the petitioner is not entitled for refund of the same. The purchase order provides the delivery schedule as per which, the petitioner was required to complete the supply on 29.12.2001. Clause 14.1 provides that delivery shall be made in accordance with the time schedule specified in the purchase order. Clause 14.2 provides that delay shall render the supplier liable to any or all the sanctions i.e. forfeiture of its performance security, imposition of liquidated damages and / or termination of the contract for default. Clause 14.1 requires the petitioner to furnish the PBG. Clause 14.2 stipulates that proceeds of PBG shall be payable to the respondent for any loss resulting from the failure of the petitioner to complete its obligations under the contract. Clause 15.1 provides for liquidated damages in case of failure of the petitioner to perform. Ld. Counsel stated that the petitioner failed to complete the supply within the stipulated time and even during the extensions and therefore, the respondent was fully justified in short closing the purchase order and recover the liquidated damages in terms of clause 15.1. Ld. Counsel stated that the respondent has filed the additional pleadings along with the documents demonstrating how the respondent had suffered losses on account of failure of the petitioner to complete supply under the contract. Ld. Counsel stated that given the quantum of loss suffered, the respondent was fully justified in withholding the meagre bank guarantee amount and utilizing it towards the compensation for the ARB No.3044/18 Vardhman Cables P Ltd Vs. Mahanagar Telephone & Ors Page No.15 of 30 loss suffered. Ld. Counsel stated that liquidated damages are recoverable without proof of actual loss as held in the case of Construction & Design Services supra. Ld. Counsel stated that the contract in the present case involved the work relating to public utility. Ld. Counsel stated that the PBG was an unconditional bank guarantee, which was meant to secure due observance and performance of the terms & conditions of the contract. Ld. Counsel stated that the two purchase orders placed on record were to show the exercise undertaken by the respondent to place the orders for supply of wires, which could be issued only in the month of June 2003. Therefore, average revenue per user for six months was taken to calculate the total loss per connection per month due to non supply of dropwire by the petitioner.
Adjudication/findings:
17. I have considered the submissions as above and gone through the impugned award and the relevant documents as well as the case laws (supra).
18. Section 34 of the Arbitration and Conciliation Act reads as under:
"34.Application for setting aside arbitral award (1)Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with subsection (2) and sub sec tion (3).
ARB No.3044/18 Vardhman Cables P Ltd Vs. Mahanagar Telephone & Ors Page No.16 of 30 (2)An arbitral award may be set aside by the court only if
(a) the party making the application furnishes proof that
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any in dication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contem plated by or not falling within the terms of the submis sion to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submit ted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accor dance with this Part; or
(b) the court finds that
(i) the subjectmatter of the dispute is not capable of settlement by arbitration under the law for the time be ing in force, or
(ii) the arbitral award is in conflict with the public pol icy of India.
Explanation I For the avoidance of any doubt, it is clar ified that an award is in conflict with the public policy of India only if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81."
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ii) It is in contravention with the fundamental policy of Indian law;
iii) It is in conflict with the most basic notions of moral ity or justice.
ExplanationII For the avoidance of doubt, the test as to whether there is a contravention with the fundamen tal policy of Indian law shall not entail a review on the merits of the dispute.
[2 (A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the court, if the court finds that the award is vitiated by patent illegality appearing on the face of the award: Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.
19. Normally, the general principles are that the decision of the Arbitrator unless there is an error apparent on the face of the award which makes it unsustainable, is not to be set aside even if the court as a court of law would come to a different conclusion on the same facts. The court cannot reappraise the evidence and it is not open to the court to sit in appeal over the conclusion of the arbitrator. It is not open to the court to set aside a finding of fact arrived at by the arbitrator and only grounds on which the award can be cancelled are those mentioned in the Arbitration Act. Where the arbitrator assigns cogent grounds and sufficient reasons and no error of law or miscon duct is cited, the award will not call for interference by the court in exercise of the power vested in it.
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20. In the case of Associate Builders v/s Delhi Development Author ity, (2015) 3 SCC 49, it was held that interference with an arbitral award is permissible only when the findings of the arbitrator are ar bitrary, capricisious or perverse or when conscience of the Court is shocked or when illegality is not trivial but goes to the root of the matter. The arbitrator is ultimately a master of the quantity and qual ity of evidence while drawing the arbitral award. Patent illegality must go to the root of the matter and cannot be of trivial nature.
21. In Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India Ltd. 2019 SCC OnLine SC 677, the Supreme Court has held that under Section 34 of the Act, a decision which is perverse while no longer being a ground for challenge un der public policy of India would certainly amount to a patent illegal ity appearing on the face of the award. A finding based on the docu ments taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such de cision is not based on evidence led by the parties and therefore would also have to be characterized as perverse.
22. In the backdrop of the above, let me now examine the objections against the impugned award agitated by Ld. counsel for petitioner, visavis the contentions of Ld. counsel for respondent, in support of the award.
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23. It is an admitted case of the parties that the petitioner was required to supply the total length of dropwire before 29.12.2001 as per the purchase order dated 21.07.2001, but it failed to complete the supply within the stipulated time. It had taken seven extensions of time to supply the dropwire. When the sixth extension was taken on 15.07.2002, the respondent in its letter had sounded a note of caution that it was the last extension and failure to supply would result in revocation of bank guarantee along with other penalty as per the terms and conditions. In pursuance to this note, the petitioner supplied two lots of 500 kms to make up the total supply of 4500 kms against the contractual 4690 kms and was still in default of 190 kms when the contract was foreclosed on 12.11.2002.
24. Clause 14.1 of Section III of General Conditions of Contract, obligated the petitioner to stick to a particular time frame. Clause 14.2 provided that delay by the petitioner in the performance of its delivery obligations shall render it liable to any or all the conditions i.e. forfeiture of its performance security, imposition of liquidated damages and/or termination of the contract for default. Clause 15.1 provided that if the petitioner failed to deliver the stores within the period prescribed for delivery, the respondent shall be entitled to recover liquidated damages. Clause 17.2 provides that in the event, respondent terminates the contract in whole or in part pursuant to para 17.1, the respondent may procure, upon such terms and in such manner as it deems appropriate, goods similar to those undelivered and petitioner shall be liable to the respondent for any excess cost ARB No.3044/18 Vardhman Cables P Ltd Vs. Mahanagar Telephone & Ors Page No.20 of 30 for such similar goods.
25. The documents placed by the respondent in additional pleadings i.e. Annexure R1 and R2 show that it had planned to utilize the dropwire for providing new connections to the consumers and also to consolidate and maintain the existing system. The respondent has given a detailed calculations as to how many connections were likely to be provided with the dropwire and how much revenue could have been raised by it. Admittedly, during evidence, the respondent has produced two purchase orders placed by it whereby it had purchased the dropwire @ Rs. 1190.70 per km by incurring extra cost of Rs. 51.70 per km but as pleaded, it was produced not to show the difference in price but to show that it was able to place the purchase order for the remaining length only in the month of June, 2003. The respondent has taken the average revenue per user for six months to calculate the loss.
26. In the instant case, the arbitrator has referred para 1 and 2 of the bank guarantee and observed that the above clauses did not oblige the respondent either to notify the bank or the petitioner in advance to encash the bank guarantee. Rather, the respondent was the sole judge to decide as to whether the bank guarantee was required to be encashed. It was not to assign any reason to the bank who was duty bound to carry out the mandate without raising any eyebrow. I am in agreement with the observations of Ld. Arbitrator. It was an unconditional bank guarantee and the respondent was well ARB No.3044/18 Vardhman Cables P Ltd Vs. Mahanagar Telephone & Ors Page No.21 of 30 within its right to invoke the bank guarantee in terms of Clause 14.2. It was not required to give any reason to the bank before invoking the bank guarantee. In the instant case, the respondent by amended pleadings and evidence has shown the loss it suffered because of the petitioner's failure to supply dropwire in time which fact the arbitrator has noted in the award. He has also noted that the petitioner's letters placed at page 65 and 66 of paper book confirmed its failure to supply the goods in time because of its own negligence and not due to the fault on the part of the respondent. It was also observed that due to failure of petitioner to supply the dropwire in time, the respondent suffered the loss of prospective profit and revenue. He has rightly referred the case of M/s Construction Design Services v/s DDA (supra), wherein it was held that in case of delay in completion of work relating to public utility, actual loss need not be proved and the same can be presumed on the facts of the case.
27. In the instant case, the respondent was doing the public utility services. It has demonstrated from the documents that it had suffered losses on account of failure of the petitioner to complete the supply under the contract. Given the quantum of loss it suffered as evident from the record, it withheld only the meagre bank guarantee amount utilizing it towards the compensation of the loss suffered. It is to note that the performance bank guarantee was meant to secure due observance and performance of the terms and conditions of the contract.
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28. In the instant case, the High Court in its order dated 08.12.2009 has also observed that it was not the case of the appellant (petitioner herein) that the respondent did not suffer any loss and therefore was not entitled to forfeit the amount of bank guarantee in terms of Section 73 of the Act or because that there was no such clause of liquidated damages entitling forfeiture under Section 74 of the Act and that no loss had been caused.
29. The Supreme Court in the case of Maula Bax Vs. UOI, 1970 (1) SCR 928 has held that where under the terms of the contract, the party in breach had undertaken to pay a sum of money or to forfeit a sum of money, which he has already paid to the party complaining of breach of contract is of the nature of penalty. All stipulations by way of penalty are covered by Section 74 of the Indian Contract Act. The Supreme Court in the case of Fateh Chand Vs. Bal Kishan, 1964 (1) SCR 515 has held as under:
"Section 74 of the Indian Contract Act deals with the measures of damages in two cases:
1. Where the contract names a sum to be paid in case of breach and
2. Where the contract contains any other stipulation by way of penalty.
The Section undoubtedly says that the aggrieved party is entitled to receive compensation from the party who had broken the contract whether or not actually damages or loss is proved to have been caused by the breach. Thereby, it merely dispenses with proof of actual loss of damages. It does not justify the award of compensation when in consequence of the breach no legal entry at all has resulted because compensation for breach of contract can be awarded to make good loss or damages which naturally arose in the usual course of things".
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30. This principle was followed in the case of Kailash Nath Vs. DDA (2015) 4 SCC 136. The Court laid down the following principles:
1. "Where a sum is named in a contract as a liquidated amount payable by way of damages, the party complaining of a breach can receive reasonable compensation such as liquidated amount, only if it is a genuine preestimate of damages fixed by both the parties and found to be such by the court. In other cases, where a sum is named in a contract as a liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount so stated. Similarly, in cases where the amount fixed is in the nature of penality, only reasonable compensation can be awarded not exceeding the penality so stated. In both the cases, the liquidated amount or penality is the upper limit beyond which the court cannot grant reasonable compensation.
2. Reasonable compensation will be fixed on well known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act.
3. Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the section.
4. The section applies whether a person is a plaintiff or a defendant in a suit.
5. The sum spoken of may already be paid or be payable in future.
6. The expression "whether or not actual damage or loss is proved to have been caused thereby" means that where it is possible to prove actual damage or loss such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove, the liquidated amount named in the contract, if a genuine preestimate of damage or loss, can be awarded.
7. Section 74 will apply to cases of forfeiture of earnest money under a contract. Where forfeiture takes place under the terms and condition of a public auction before agreement is reached, Section 74 would have no application".
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31. In the case of Indian Oil Corporation v/s M/s Lloyds Steel Industries Ltd, 122 (2007) Delhi Law Times 659, there was no specific provision in the contract that time would be the essence of contract, there was no provision for grant of provisional extension, because of the delay on the part of the respondent, petitioner had not suffered any loss. It was held that the damages could not be claimed unless the loss was proved; In case when party complaining of breach of contract has not suffered legal injury in sense of sustaining loss or damages, there is nothing to compensate him, nothing to recompense, satisfy or make amends. If liquidated damages are awarded to petitioner even when petitioner has not suffered any loss, it would amount to unjust enrichment which cannot be countenanced and has to be eschewed.
32. In the instant case, the respondent has led evidence how the delay had resulted into loss of business. It had to utilize the dropwire for providing new connection to the consumers and also to consolidate and maintain the existing system. It had to freshly call the tenders which took almost six months to take the supply. It has submitted the calculations as to how many connections were likely to be provided with the wire and how much revenue could have been raised by it. Given the quantum of loss it suffered, I am of the view the respondent was fully justified in withholding the meagre bank guarantee amount and utilizing the amount/compensation for the loss suffered.
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33. It is the duty of the Arbitrator to protect the promisee / respondent by awarding proper compensation and at the same time to protect the interest of the promisor / petitioner by granting him relief against any unlawful forfeiture or recovery. In the case of Fateh Chand (supra), it was held that the jurisdiction of the Court to award compensation in cases of breach of contract is unqualified except to the maximum stipulated but the compensation has to be reasonable. In the instant case, the respondent has produced enough material to show how the loss had occurred for not providing the new connections. Non delivery of wire had caused loss to the respondent in terms of time and effort. It had caused enormous hardship to the respondent by reprocessing the supply order and taking the supply.
34. As evident from the record, the arbitrator had considered the contentions of the parties, terms and conditions of the contract and complied with the orders of the High Court giving opportunity to the parties to file their amended pleadings and produce evidence. He thereafter, had given the findings holding that the clauses of the bank guarantee did not oblige the respondent either to notify the bank or the petitioner in advance about its intention to encash the bank guarantee rather, it was the sole judge to decide as to whether the bank guarantee is required to be encashed. It had not to assign any reason to the bank who was rather duty bound to carry out its mandate without raising any eyebrow. Similarly, it also exposed the ARB No.3044/18 Vardhman Cables P Ltd Vs. Mahanagar Telephone & Ors Page No.26 of 30 hollowness of the argument that it was a conditional guarantee. It was observed that no proper explanation was ever given by the petitioner as to why the supply was delayed. On the other hand, the respondent has shown the loss which it suffered because of the petitioner's failure to supply the dropwire in time. The arbitrator has considered the detailed calculations given by the respondent and observed that obviously due to the failure of the petitioner to supply the dropwire in time, respondent suffered the loss of profit and revenue. The supply which had to be completed within a span of little more than five months, could not be compensated even in 16 months. This material had to be used for providing a public utility to the consumers on commercial basis. It was held that it does not appear to judicial conscience that there was no loss or damage to the respondent.
35. In the instant case, in the additional pleadings, the respondent had stated that due to non supply of 190 kms of wire, the expected revenue loss would come to Rs. 2315245/ i.e. 86 times of the value of the defaulted quantity of 190 km (value Rs. 218120/). Given the quantum of loss it suffered, I am of the view the respondent was fully justified in withholding the meagre bank guarantee amount and utilizing the compensation for the loss it suffered.
36. From a careful perusal of the arbitration proceedings and the award, I find that the Arbitrator has given his findings only after considering the pleadings, documents and arguments advanced ARB No.3044/18 Vardhman Cables P Ltd Vs. Mahanagar Telephone & Ors Page No.27 of 30 before him, that too after taking into account the documentary evidence. Further, the scope and purview of deciding the present objections being limited one does not permit this Court to replace the finding given by the Arbitrator, by its own by reappreciating the evidence / material produced before the Arbitrator.
37. It was held in the case of State Trading Corporation of India Ltd Vs. Teopfer International Asia PTE Ltd FAO (OS) 242/2014 that Section 34 proceeding which in essence is the remedy of annulment, cannot be used by one party to convert the same into a remedy of appeal. Finality of the award is very important. An interpretation placed on a contract is a matter within the jurisdiction of the Arbitral Tribunal and even if an error exists, this is an error of fact within jurisdiction which cannot be reappreciated by the Court under Section 34 of the Act. Legal position is no more res integra that the Arbitrator having been made the final Arbiter of resolution of dispute between the parties, the award is not open to challenge on the ground that Arbitrator has reached at a wrong conclusion. If we were to start analyzing the contract between the parties and interpreting the terms and conditions thereof and which will necessarily have to be in the light of the contemporaneous conduct of the parties, it will be nothing else than sitting in appeal over the arbitral award and which is not permissible.
38. For the aforesaid reasons, the impugned award does not call for interference from this court. The findings of the arbitrator that ARB No.3044/18 Vardhman Cables P Ltd Vs. Mahanagar Telephone & Ors Page No.28 of 30 the respondent was justified in forfeiting and encashing the performance bank guarantee and that the petitioner is not entitled for its refund; so obviously the question of its entitlement to any interest does not arise at all, are upheld.
Conclusion:
39. Now to sum up, in the instant case, most of the grounds raised by the petitioner to challenge the award are factual in nature which have been already considered and adjudicated in the im pugned award. It is outside the scope of Section 34 of the Act to reappreciate the entire evidence and come to conclusion because such an approach would defeat the purpose of arbitration proceed ings. It has been consistently held that when a court is applying the public policy test to an arbitration award, it does not act as a court of appeal and consequently, errors of facts cannot be corrected. A pos sible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quality and quantity of ev idence to be relied upon when he delivers his arbitral award. Once, it is found that the arbitrator's approach is not arbitrary or capricious, then he is the last word on facts. (P.R Shah, Shares & Stock Brokers (P) Ltd v. B.H.H Securities (P) Ltd. [(2012) 1 SCC 594).
40. Having examined the various contentions of the petitioner on the touchstone of the parameters of interference as explicitly laid down by the Supreme Court in several judgments referred to above, I am of the view that the impugned Award does not suffer from any ARB No.3044/18 Vardhman Cables P Ltd Vs. Mahanagar Telephone & Ors Page No.29 of 30 infirmity or error apparent on the face of record. It is not for this Court to sit in appraisal of the evidence led before the learned Arbitrator and this Court will not open itself to the task of being a judge on the evidence placed before the Arbitrator which was subject matter of dispute. In the present case, the Arbitrator has deliberated on the issues under reference which were within his competence and as per the agreement entered into between the parties. There are no allegations against the Arbitrator of misconduct nor of having misconducted the proceedings which have either been specifically alleged by the petitioner or established. The Arbitrator has duly explained the reasons for arriving at his decisions. There is nothing to indicate that award is in conflict with the basic notions of justice and the fair play and fundamental policy of Indian law or in contravention of the terms of the contract or it lacks reasoning.
41. For the aforesaid reasons the petition is dismissed with no order as to costs.
42. File be consigned to record room.
Digitally signed SANJIV by SANJIV JAIN
Date:
JAIN 2021.03.31
Announced in open court 17:01:33 +0530
today i.e. 31st March, 2021 (Sanjiv Jain)
District Judge (Commercial) 03
Patiala House Courts, New Delhi
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